This article provides a brief summary of the most significant opinions issued by federal appellate courts during the period January through April 2023, which covered, among other topics, contracts, governmental takings, COVID shutdown orders, arbitration, bankruptcy, and consumer law.
The circuits are absorbing and implementing last year’s Supreme Court decisions, and foremost is the Court’s decision in Morgan v. Sundance, Inc., 142 S. Ct. 1708, 212 L. Ed. 2d 753 (2022), which held that whether a party has waived its right to arbitrate is examined under the same conditions as waiver of any other contract and an examining court may not add additional issues or conditions not generally applicable to waiver of other contractual provisions. The Third Circuit in White v. Samsung Electronics America, Inc., Case No. 22-1162 (3d Cir. 2023), and the Ninth in Hill v. Xerox Business Services, LLC, Case No. 20-35838 (9th Cir. 2023), appear to have fully adopted Morgan. The Ninth also held that the Federal Arbitration Act preempts a state rule that discriminates against the formation of an arbitration agreement, even if that agreement is ultimately enforceable, Chamber of Commerce of the United States of America v. Bonta, Case No. 20-15291 (9th Cir. 2023), and rejected a modified click-wrap provision in Johnson v. Walmart Inc., Case No. 21-16423 (9th Cir. 2023), when it held that an in-store purchase affiliated with an online purchase, which online purchase contained an arbitration agreement, is not required to be arbitrated when the in-store purchase did not contain an arbitration agreement.
There are two big decisions of note in the bankruptcy context. The Supreme Court held in MOAC Mall Holdings LLC v. Transform Holdco, LLC, Case No. 21–1270 (2023), that the statutory mootness provision of 11 U.S.C. § 365(m) is not jurisdictional and—absent a stay order—can be reviewed on appeal. This decision is concerning to many involved with real estate coming out of bankruptcy courts, as the statutory mootness principle gave comfort that the bankruptcy court’s decisions could not be reversed; that approach is not so clear after the MOAC decision. Also, of interest is In re LTL Management, LLC, Case Nos. 22-2003, 22-2004, 22-2005, 22-2006, 22-007, 22-2008, 22-2009, 22-2010, and 22-2011 (3d Cir. 2023), where the Third Circuit held that the Bankruptcy Code applies only to those in financial distress, and no exceptions are made for companies seeking to protect brand image or to combine multiple suits into one forum. This is more of a front-end issue, so it should not be as concerning to investors and purchasers.
Sections 363 and 365 issues were not confined to the Supreme Court. The Fifth Circuit held in In re Palm Springs II, Case No. 21-11244 (5th Cir. 2023), that a lender’s knowledge of issues surrounding a property (an existing state court construction lien, state court litigation wherein the construction company is contesting the lender’s deed of trust, and bankruptcy adversary proceedings contesting its deed of trust) does not constitute knowledge of an “adverse claim” under 11 U.S.C. § 363(m) such that the lender is not a “good faith purchaser” entitled to statutory mootness protection. Similarly, a creditor who seeks payment from a debtor under one contract but whose assertion of uncured default arises from a separate contract in which the creditor has no contractual rights is not entitled to “cure claims” under 11 U.S.C. § 365(b)(1)(A), i.e., to be paid as part of the executory contract payments. In re George Washington Bridge Bus Station Development Venture LLC, Case No. 21-2050-bk (2d Cir. 2023).
Although bankruptcy filings are down nationwide, we recently have had several cases involving Chapter 11 issues. The Eleventh Circuit held that claim or interest holders are entitled to a new disclosure statement and another opportunity to vote when there is a modification to a Chapter 11 reorganization plan that materially and adversely affects the claim or interest holders. Braun v. America-CV Station Group, Inc. (In re America-CV Station Group, Inc.), Case No. 21-13774 (11th Cir. 2023). The Seventh Circuit held that a creditor that votes for plan confirmation—which plan reserves jurisdiction to the bankruptcy court to interpret and enforce the plan—and then seeks relief from state court in violation of the plan is properly sanctioned under Taggart v. Lorenzen, 139 S. Ct. 1795, 204 L. Ed. 2d 129 (2019), for its conduct. The Fourth Circuit held that a primary insurer was not a “party in interest” under 11 U.S.C. § 1109(b) and thus lacked standing to object to an asbestos company’s 11 U.S.C. § 524(g) plan of reorganization. In re Kaiser Gypsum Company, Inc., Case No. 21-1858 (4th Cir. 2023).
Strong-arm powers were also recently on the docket. The Seventh Circuit held in Warsco v. Creditmax Collection Agency, Inc., Case No. 22-1733 (7th Cir. 2023), that Barnhill v. Johnson, 503 U.S. 393 (1992) (federal rather than state law defines the meaning of “transfer” under 11 U.S.C. § 547 for determining a preference), requires overruling of the previous Seventh Circuit precedent of In re Coppie, 728 F.2d 951 (7th Cir. 1984). This was required because Indiana law determines when there is a “transfer.” In re Kimball Hill, Inc., Case No. 22-1724 (7th Cir. 2023). And the Seventh Circuit also held the standard of proof in turnover actions under 11 U.S.C. § 542 is preponderance of the evidence and not the clear and convincing standard. In re Dordevic, Case No. 22-2500 (7th Cir. 2023).
Chapter 13 questions were also prevalent. The Tenth Circuit held that the Chapter 13 Panel Trustee must return any payments made by the debtor in anticipation of the plan being confirmed if the plan is not confirmed. Goodman v. Doll (In re Doll), Case No. 22-1004 (10th Cir. 2023). And the Eleventh Circuit in Mortgage Corporation of the South v. Bozeman (In re Bozeman), Case No. 21-10987 (11th Cir. 2023), ruled that 11 U.S.C. § 1322(b)(2) (the Bankruptcy Code’s “antimodification” provision, which holds bankruptcy plans cannot modify home mortgages on a debtor’s principal residence secured by that residence) controls over the finality of a confirmed plan even if the creditor failed to object to the plan.
The question of finality is sometimes challenging in the bankruptcy context, and the First and Eleventh Circuits recently addressed the issue. The First Circuit held that the application of judicial estoppel in bankruptcy is not formulaic and “parties who fail to identify a legal claim in bankruptcy schedules may escape the application of judicial estoppel if they can show that they ‘either lacked knowledge of the undisclosed claims or had no motive for their concealment.’” In re Buscone, Case No. 22-9001 (1st Cir. 2023). Likewise, the Eleventh Circuit held in Esteva v. UBS Financial Services Inc. (In re Esteva), Case No. 21-13580 (11th Cir. 2023), that a district court may exercise its discretion and review interlocutory judgments and orders of a bankruptcy court, but a court of appeals has appellate review jurisdiction over only orders and final judgments entered by a district court.
Finally, the Sixth Circuit held in Digital Media Solutions, LLC v. South University of Ohio, LLC, Case No. No. 21-4014 (6th Cir. 2023), that notwithstanding Federal Rule of Civil Procedure 66’s heritage and historical receiver practice as a form “Chapter 11” before the adoption of the Bankruptcy Code, a court appointing a receiver under the Rule does not have the authority to issue a “bar order” prohibiting suits against third parties.
There were a few interesting contract cases during this period. First up, there were several OGM cases, and the Fourth Circuit held oil and gas leases that contain a “Market Enhancement Clause” permit lessees to deduct post-production costs from royalties paid to lessors. Corder v. Antero Resources Corporation, Case No. 21-1715 (4th Cir. 2023). In addition, the Eighth Circuit held that an oil well drilling agreement that gave the drilling company “[f]ull rights and access to use the Land as reasonably necessary for oration of all oil and gas activity,” which included using roads “across and through the] Land,” gave the drilling company the right to bring water trucks across the defined land in order to create an input well to extract oil from other wells. Brown v. Continental Resources, Inc., Case No. 22-1230 (8th Cir. 2023).
Indemnification also gave us authority to review. Rescap Liquidating Trust v. Primary Residential Mortgage, Inc., Case No. 21-2139 (8th Cir. 2023), held that a liquidating trust of a residential mortgage back securities intermediary is entitled to indemnification based on demonstrating breaches by the originator of the mortgage loans increased the intermediary’s risk of liability without demonstrating breaches on an individual loan basis. The Tenth Circuit held that a sales contract that required the purchaser to indemnify the seller for “losses” and “environmental liabilities” associated with its asset purchase, which broadly defined “losses” to cover all losses and “environmental liabilities” to mean “any and all damage” for “all past, present and future obligations” arising from environmental matters, permitted the seller to draw on a standby letter of credit for indemnification. EFLO Energy v. Devon Energy Corporation, Case No. 22-6051 (10th Cir. 2023).
There were a few corporate and finance cases. The Eleventh Circuit held that a reverse triangular merger does not constitute a “merger” for purposes of monies due under a consulting agreement. GSE Consulting, Inc. v. L3Harris Technologies, Inc., Case No. 22-10647 (11th Cir. 2023). Of concern is Landcastle Acquisition Corp. v. Renasant Bank, Case No. 20-13735 (11th Cir. 2023), where the D’Oench, Duhme [& Co. v. Fed. Deposit Ins. Corp., 315 U.S. 447 (1942); 12 U.S.C. § 1823(e)] Doctrine, a form of estoppel, appeared again. Here the Eleventh Circuit held the Doctrine applies when the FDIC takes over a failed bank and sells it to a solvent bank such that evidence outside the failed bank’s records cannot be used to establish liability against the failed bank.
The worst of the pandemic may be behind us, but the courts are still grappling with questions raised by COVID. The Third Circuit aligned itself with most courts and held that businesses’ inability to use their properties for their intended business purposes does not constitute “physical loss of” property as that phrase is used in insurance policies. Wilson v. USI Insurance Service LLC, Case No. 20-3124 (3d Cir. 2023). Along the same lines, the Eighth Circuit held that the COVID-19 virus did not cause physical damage or alter property by attaching to physical surfaces and requiring cleaning, and accordingly, there is no insurance coverage. Lindenwood Female College v. Zurich American Insurance Company, Case No. 21-3738 (8th Cir. 2023). Finally, the Fourth Circuit held that being barred for 45 days, due to the pandemic, from entering the county in which your beach house sits does not constitute a Fifth Amendment taking as the property was not physically appropriated and no compensation is due under the ad hoc balancing test for the loss of use. Blackburn v. Dare County, Case No. 20-2056 (4th Cir. 2023).
There were a good number of land use cases this period, most ruling in favor of government. The Fifth Circuit held that the Supreme Court’s opinion in Knick v. Township of Scott, 139 S. Ct. 2162 (2019), did not eliminate the defense of res judicata in cases where the issue has been conclusively litigated in state courts before suit was filed in federal court. Tejas Motel, L.L.C. v. City of Mesquite, Case No. 22-10321 (5th Cir. 2023). The Seventh Circuit held in Billie v. Village of Channahon, Case No. 22-1660 (7th Cir. 2023), that the Constitution establishes negative rather than positive liberties such that it prohibits certain government action but does not compel government action to those in distress, and, accordingly, there is no violation of the Takings Clause when a local government issues building permits for a housing development later found to be flood prone. The Fourth Circuit held that real estate development expenses incurred before issuance of a permit are not compensable under North Carolina law, even though the expenses were incurred based on a county planning board’s previously approved “Preliminary Subdivision Plan.” PEM Entities LLC v. County of Franklin, Case No. 21-1317 (4th Cir. 2023). A landowner who has the opportunity but chooses not to participate in local government property lien proceedings is precluded from claiming in his federal litigation that the Rooker-Feldman Doctrine does not apply to him because he was not a party to the state court proceedings. Bruce v. City and County of Denver, Case No. 21-1388 (10th Cir. 2023).
Continuing the government’s winning streak at Alive Church of the Nazarene, Inc. v. Prince William County, Case No. 21-2392 (4th Cir. 2023), the Fourth Circuit held that local government does not violate the Religious Land Use and Institutionalized Persons Act by requiring a church conducting agricultural operation on land zoned for agricultural use to meet the same requirements as other similarly situated agricultural uses. The Second Circuit held that New York City’s rent stabilization law neither effects a taking under the Takings Clause nor violates a landlord’s substantive due process rights. Community Housing Improvement Program v. City of New York, Case No. 20-3366-cv (2d Cir. 2023). The Fourth Circuit held that North Carolina’s Property Protection Act (which prohibits gaining access to the nonpublic areas of another’s premises and engaging “in an act that exceeds the person’s authority to enter”), N.C. Gen. Stat. § 99A-2(a), is modified to allow “legitimate” news gathering. People for the Ethical Treatment of Animals, Inc. v. North Carolina Farm Bureau Federation, Inc., Case Nos. 20-1776, 20-1777, and 20-1807 (4th Cir. 2023).
GEFT Outdoor, LLC v. Monroe County, Case Nos. 21-3328 and 22-1004 (7th Cir. 2023), held that content-neutral restraints on commercial speech—including restraints that are narrowly tailored to serve a government interest, leave alternative methods, and do not give government too much discretion—are constitutional. Epcon Homestead, LLC v. Town of Chapel Hill, Case No. 21-1713 (4th Cir. 2023), held that claims under 28 U.S.C. § 1983 must be brought in three years, and, accordingly, claims that a municipality improperly required payment for low-income housing as a condition of receiving construction permits is barred by the statute of limitations when the developer made the payment, received building permits, and sued only after finishing the project. And Back Beach Neighbors Committee v. Town of Rockport, Case No. 22-1485 (1st Cir. 2023), ruled that Beachfront and adjacent owners can bring a “class of one” equal protection claim against the Town for allegedly not enforcing beach rules as it applies to them, but they must have been “intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment.”
But it was not all doom and gloom for landowners, as Social Recovery, LLC v. City of Costa Mesa, Case No. 20-55820 (9th Cir. 2023), held that sober living home operators can satisfy the “actual disability” prong of the Fair Housing Act, the Americans with Disabilities Act, and the California Fair Employment and Housing Act on a collective basis by demonstrating that they serve or intend to serve individuals with actual disabilities, i.e., there is no requirement to provide individualized evidence of the actual disability of their residents.
There were several interesting litigation cases that affect real estate. The Supreme Court held in Axon Enterprise, Inc. v. Federal Trade Commission, Case No. 21-86 (2023), that the interagency-review processes of the Securities Exchange Act and Federal Trade Commission Act do not eliminate the district court’s jurisdiction over claims the process is unconstitutional. Also of interest, Colorado Bankers Life Insurance Company v. Academy Financial Assets, LLC, Case No. 22-1104 (4th Cir. 2023), set forth that the North Carolina state statute providing for an attorney fees award of 15 percent of the outstanding loan balance without regard to “the attorneys’ actual billings or usual rates” is enforceable. The Fifth Circuit held in In re KP Engineering, L.P., Case No. 22-20480 (5th Cir. 2023), that under Texas law—and by extension in bankruptcy court adversary proceedings in Texas—the pleading requirement for quantum meruit that there be no contract applies to proceedings against both the contracting party and third parties who were not part of the contract but benefitted from the contract. The Sixth Circuit held that Tennessee law holds that a third party cannot sue for intentional interference with a business relationship if the alleged interference was embodied in a contract, and accordingly a prospective purchaser of real estate cannot state a claim for interference with a lender that refuses—as permitted by its lending contract—to approve the sale of real estate to a third party. BNA Associates LLC v. Goldman Sachs Specialty Lending Group, L.P., Case No. 22-5491 (6th Cir. 2023).
There were a good number of regulatory and consumer cases, too, during this time period. Ward v. NPAS, Inc., Case No. 21-6189 (5th Cir. 2023), held that a party is not considered a “debt collector” under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692–1692p, if the amount due was not in default at the time the debt was transferred to the party. Bassett v. Credit Bureau Services, Inc., Case Nos. 21-2864 and 22-1206 (8th Cir. 2023), held that a borrower who receives an incorrect dunning letter has not suffered a “concrete harm” and thus lacks Article III standing. And Mauthe v. Millennium Health LLC, Case No. 20-2265 (3d Cir. 2023), held that an unsolicited junk fax does not violate the Telephone Consumer Protection Act, 47 U.S.C. § 227, if the service or product it advertises is free. Mader v. Experian Information Solutions, Inc., Case Nos. 20-3073 and 21-2171 (2d Cir. 2023), held that the Fair Credit Reporting Act’s requirement of reasonably accurate information, 15 U.S.C. § 1681e(b), is not violated when there is a legal inaccuracy due to substantial disagreement over whether debtor’s bankruptcy proceedings discharged his student loans. These cases may create significant defenses for businesses involved in consumer and regulatory litigation.
Consumers also won a few rounds. Laufer v. Naranda Hotels, LLC, Case No. 20-2348 (4th Cir. 2023), is probably most prominent among these case as the Fourth Circuit aligned itself with the federal circuits, which hold that a “tester” (person who evaluates physical locations for ADA compliance and files suit against those they contend are noncompliant) has Article III standing to file suit. Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C., Case No. 20-3471 (2d Cir. 2023), held that alleging the Bureau’s actions were unlawful under Seila Law LLC v. CFPB, 140 S. Ct. 2183, 207 L. Ed. 2d 494 (2020) (statute that provided the director could not be removed by the president other than for cause is unconstitutional), requires “but-for causation,” i.e., proving the agency would not have taken the action but for the president’s inability to remove the director is also consumer-friendly. Likewise, Royal Palm Village Residents, Inc. v. Slider, Case No. 21-13789 (11th Cir. 2023), held that Florida Statute § 723.068 (prevailing parties in litigation over the Mobile Home Act are entitled to attorney fees) does not apply to a voluntarily dismissed amended complaint that alleged violations of the Act but did not include claims for violations of or requests for relief under the Act or seek to enforce compliance with the Act. And Walters v. Fast AC, LLC, Case No. 21-13879 (11th Cir. 2023), held that an aggrieved party has standing to claim a violation of the Truth in Lending Act against a defendant lender when the party violating the Act was the agent of the lender.
There were two title cases, both involving the Quiet Title Act, 28 U.S.C. § 2409a(g). The Supreme Court held in Wilkins v. United States, Case No. 21-1164 (2023), that the 12-year bar of the Quiet Title Act was a nonjurisdictional claims-processing rule, and Pueblo of Jemez v. United States of America, Case No. 20-2145 (10th Cir. 2023), held that a federally recognized Indian tribe does not lose its aboriginal claim to federal lands under the Quiet Title Act by not using the land to the exclusion of other tribes.
The Supreme Court is behind its historical average of opinions issued at this point in the term, but there were a good number of cases this past period. Of note are the good number of bankruptcy and land-use cases, an interesting contrast between distressed properties and properties in development.
